Potential economic impacts of the wheat stem rust...
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Potential economic impacts of the wheat stem rust strain Ug99 in Australia Donkor Addai, Ahmed Hafi, Lucy Randall, Philip Tennant,
Tony Arthur and Jay Gomboso
Research by the Australian Bureau of Agricultural
and Resource Economics and Sciences
Research report 18.9 September 2018
© Commonwealth of Australia 2018
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Cataloguing data Addai, D, Hafi, A, Randall, L, Tennant, P, Arthur, T & Gomboso J 2018, Potential economic impacts of the wheat stem rust strain Ug99 in Australia, ABARES research report, prepared for the Plant Biosecurity Branch, Department of Agriculture and Water Resources, Canberra, September. CC BY 4.0.
ISSN 1447-8358 ISBN 978-1-74323-375-7 ABARES project 43609
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Acknowledgements The authors thank Terence Farrell and Sarah Cumpston (GRDC), Evans Lagudah (CSIRO), Sarah Hilton and Alistair Davidson (DAWR), Gordon Murray (Graham Centre, CSU), and ABARES staff (Zoltan Lukacs, Sarah Smith and Christopher Price) for their valuable contributions to the report.
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Contents
Summary v
1 Introduction 1
2 Background 3
Australian wheat industry 3
Vulnerability of wheat growing areas to wheat stem rust 4
Wheat breeding to incorporate resistance to stem rust 6
3 Methodology 8
Spatial mapping and modelling 8
Economic modelling 12
Development of Ug99 spread scenarios 14
4 Economic impacts 16
Changes in quantity produced and price received 16
The economic impact on the wheat industry 16
Benefits from prevention 18
Benefits from adopting Ug99 resistant varieties 19
Key limitations 21
5 Conclusions 22
Glossary 23
References 24
Tables
Table 1 Potential yield losses from stem rust 1
Table 2 Ug99 likelihood ratings produced by linking climatic suitability and
varietal susceptibility ratings 11
Table 3 Assumptions of yield losses by Ug99 likelihood ratinga 12
Table 4 Average supply shocks estimated for key wheat growing states for the
hypothetical Australia-wide outbreak, at 2014–15 prices 13
Table 5 Effect of hypothetical Ug99 outbreaks on equilibrium wheat production
and price 16
Table 6 Revenue losses from hypothetical outbreak scenariosa, at 2014–15 prices 17
Table 7 Increased cost of production over 10 yearsa, at 2014–15 prices 18
Table 8 Total economic cost (revenue losses and increased cost of production)
from hypothetical outbreak scenarios 10 yearsa, at 2014–15 prices 18
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Table 9 Total cost of hypothetical outbreaks lasting one year 19
Table 10 Annual costs of adopting Ug99 resistant varieties 20
Table 11 The critical probability that equates the annual cost of switching to Ug99
resistant varieties to benefits 20
Figures
Figure 1 Australia’s wheat growing regions 3
Figure 2 Global stem rust vulnerability 4
Figure 3 Ug99 endemic and high risk areas 5
Figure 4 Spatial data (maps) used in the estimation of the likelihood of Ug99
establishing in Australia’s wheat growing areas 9
Figure 5 Ug99 wheat varietal susceptibility ratings in 2014–15 10
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Summary This report estimates the economic impact of a wheat stem rust strain Ug99 outbreak on the
Australian wheat industry.
Wheat stem rust is a fungal disease caused by the Puccinia graminis f. sp. Tritici (Pgt) fungus that
can affect wheat, barley, oat, rye and triticale when seasonal conditions are favourable. The
fungus survives on host plants and can spread quickly over large distances by wind, movements
of infected plant materials and contaminated farm machinery, equipment and clothing. Spread
through fungal spore movement is a major pathway for pathogen spread.
Wheat stem rust can attack all above-ground parts of the plant, including the stem, leaves and
inflorescence. Infected wheat plants may also produce shrivelled grain. An untreated infection
could reduce grain yield by up to 90 per cent. Treating affected crops with fungicide, to reduce
yield losses, would result in increased cost of production. However, fungicides would only be
used as an interim measure, until a resistant variety is planted in the following season.
Wheat stem rust has been present in Australia for over a century. Virulent forms of the fungus—
produced overseas through mutation—are believed to have caused three incursions in Australia
over the 1954–1969 period. The fungus has evolved since and produced other virulent strains.
The most recent and severe outbreak in Australia was the 1973 epidemic—which was estimated
to have cost the wheat industry between $200 million and $300 million (between $1.8 billion
and $2.7 billion in 2014–15 dollars).
The strain Ug99, found in Uganda in 1999, is a highly virulent strain of wheat stem rust that has
overcome 17 out of 34 stem rust resistance genes found in wheat. It is not present in Australia,
but poses a major risk to the wheat industry, in terms of industry revenue losses and increased
production costs, if the strain were to arrive in the country. Around 30 per cent of current wheat
varieties show moderate to high susceptibility to the Ug99 strain. Disruptions to Australian
wheat exports may also result if Ug99-sensitive countries ban imports of Australian wheat.
Preparedness activities for Ug99 being undertaken in Australia include significant work in
surveillance (particularly annual surveying), monitoring pathogen populations over time to
track potential virulence evolution, and pre-breeding for germplasm resistance. Eradication of
Ug99 would likely only be technically feasible if the rust is detected while still contained within a
very small area and the spore load is light (Park, 2009).
The results of this study highlights the importance of keeping Australia Ug99-free, by providing
a comparison of the costs to the wheat industry of successful versus unsuccessful prevention.
Disease spread scenarios
If Ug99 were to establish in a relatively isolated wheat growing region (such as south-west
Western Australia), the likelihood of successfully containing and eradicating the fungus would
be greater than if it were to establish in areas where wheat growing regions were in close
proximity (such as Australia’s southern wheat growing regions). To address uncertainty around
extent of spread, ABARES considered three disease spread scenarios of increasing scale:
Scenario 1: An outbreak originating in Esperance, Western Australia, spreading rapidly to all wheat-growing areas in the western region and lasting one year before complete elimination from paddocks. Esperance was chosen because historically, it has been an area prone to wheat stem rust
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Scenario 2: An outbreak originating in Ceduna, South Australia, spreading rapidly to all wheat-growing areas in the southern and northern regions of Australia and lasting one year before complete elimination from paddocks. Ceduna was chosen as it was identified as the starting point of the 1973 outbreak
Scenario 3: The Esperance outbreak, aided by westerly winds, spreads quickly beyond Western Australia to cover all wheat growing areas in the rest of Australia—thereby developing into an Australia-wide outbreak. It also lasts one year before complete elimination from paddocks.
ABARES also mapped both climatic and varietal suitability of Ug99 for the different wheat
growing areas.
In all three scenarios evaluated, it was assumed that the Ug99 outbreak would end once wheat
growers replaced susceptible (or non-resistant) wheat varieties with resistant varieties in the
following growing season. This is based on evidence that the industry already has adequate seed
stock of resistant varieties and the expectation that the profit margin from switching to resistant
varieties (influenced by avoided losses from potential future outbreaks less the cost of
switching) provide a strong economic incentive for the switch.
Economic cost of Ug99
The economic cost of the impact of Ug99 has two components: the cost of the initial outbreak
lasting one year and the cost of switching to Ug99 resistant varieties to save losses from future
outbreaks of Ug99.
When Ug99 spreads uncontrolled following its entry in Australia, the economic costs to the
wheat industry may arise from both supply shocks (wheat yield losses and mitigation costs) and
demand shocks (wheat import bans by overseas countries). Mitigation costs comprise the cost of
fungicides applied to affected crop to limit yield losses and the cost of labour inputs used to
monitor the spread of the disease. Demand shocks were determined by assuming that China
(one of the top five destinations of Australian wheat exports) would ban imports of Australian
wheat over the outbreak duration and the displaced exports would be sold in other markets at a
lower price. Other importing countries are assumed to be insensitive to an Ug99 incursion in
Australia and their imports are assumed to continue uninterrupted. The likely industry impacts
of both supply and demand shocks were estimated using partial equilibrium modelling. The
economic impacts from the outbreak are assumed to last only one year as all wheat growers
would plant Ug99 resistant varieties and Australia would regain access to the Chinese wheat
market in the following year. Ug99 resistant varieties are assumed to have the same yield and
quality characteristics as those they would replace.
The adoption of Ug99 resistant varieties also has costs: one-off seed cost, annual end-point
royalty payments and gross revenue losses from a cut back in production in response to
increased cost of production.
The total economic cost, estimated over a 10 year period, increases with the size of the outbreak
(Table S1). The costs estimated were $567 million for the Western Australia outbreak,
$803 million for the south-eastern Australia outbreak and $1,362 million for the Australia-wide
outbreak (Scenarios 1, 2 and 3, respectively in present value terms estimated assuming a 7 per
cent discount rate). Should an import ban be imposed on Australian wheat by China, the cost in
each scenario was estimated to be slightly higher.
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Table S1 Economic impact of Ug99 on the Australian wheat industry over 10 yearsa—with and without trade restrictions, in 2014–15 dollars
Scenario Extent of spread Without trade ban ($m) With trade ban ($m)
1 Western Australia 567 574
2 south-eastern Australia 803 838
3 Australia 1,362 1,403
Note: Economic impacts comprise revenue losses and increased costs of production. a Present value estimated at a 7 per cent discount rate. Source: ABARES modelling
Benefits from prevention
The economic cost in Table S1 would only be realised when Ug99 has entered, established and
spread to the full extent specified for each scenario. This cost was estimated over a 10-year
planning horizon, and comprises the cost of an outbreak lasting one year immediately after the
entry of Ug99 plus the cost of adopting resistant varieties over a 9 year period. As Ug99 is not
present in Australia and given the uncertainty around its entry, it is the expected (probability
weighted) value of these costs which approximate the gross benefits of prevention. Assuming
that it has only a 0.05 probability of entering Australia, followed by successful establishment and
spread, the expected gross benefits of investment in activities to continue to prevent the entry of
Ug99 are estimated to be between $28 million (Scenario 1 without a trade ban) and $70 million
(Scenario 3 with the trade ban) a year.
Long term benefits from switching to resistant varieties
Were Ug99 to enter, the fungus would likely become endemic in Australia. If it were not for the
availability of resistant varieties, it would result in considerably higher costs to wheat farmers
who continued to grow Ug99 susceptible varieties, as outbreaks would continue to occur
whenever seasonal conditions were favourable for the Ug99 fungus. However, switching to
resistant varieties involves costs: the one-off cost of seeds purchased first time; annual end-
point royalty payments (for each tonne of grain produced) as well as any revenue losses arising
from cutting back production to accommodate increased cost of production using the Ug99
resistant varieties.
ABARES also compared wheat farmers’ annual cost of adopting Ug99 resistant varieties against
their cost of maintaining existing varieties, following a Ug99 outbreak lasting one year. The same
three scenarios were modelled—and the outbreak was assumed to last only one year, as
seasonal conditions were assumed to be unsuitable for the virus in the following year.
The total annual costs of switching to Ug99 resistant varieties were estimated to be $57 million
for the Western Australia outbreak (Scenario 1), $83 million for the south-eastern Australia
outbreak (Scenario 2) and $139 million for the Australia-wide outbreak (Scenarios 3). These
costs were much smaller than the total estimated cost of corresponding outbreaks of $200
million, $267 million and $470 million, for the three respective scenarios (without trade ban)
and $207 million, $303 million and $511 million, respectively (with trade ban) that were
avoided by switching to Ug99 resistant varieties. However, a Ug99 outbreak would be unlikely
occur every year even if farmers continued to grow susceptible varieties despite the fungus
becoming endemic to Australia. Rather, an outbreak would occur only when seasonal conditions
are favourable for the fungus.
For switching to resistant varieties to be cost-effective in the long run, the annual expected
benefit of switching should exceed the annual cost of switching. This benefit will be affected by
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the likelihood (or probability) of an outbreak. In the absence of information on the annual
probability of an outbreak under endemic state, ABARES estimated the breakeven (or critical)
value of this probability that equates the expected benefit of switching to annual cost of
switching. This is presented in Table S2 both with and without a wheat trade ban.
Table S2 Critical probability thresholds for switching to Ug99 resistant varieties, with and without trade bans for Australian wheata
Scenario Extent of spread Critical probability
(without trade ban) b
Critical probability
(with trade ban) b
1 Western Australia 0.29 ($57m/$200m) 0.28 ($57m/$207m)
2 south-eastern Australia 0.31 ($83m/$267m) c 0.24 ($83m/$303m)
3 Australia 0.30 ($139m/$470m) 0.27 ($139m/$511m)
Note: a Critical probability represents the breakeven (or threshold) value at which the annual costs of switching to Ug99 resistant varieties and the annual expected benefits (or avoided losses) of switching to Ug99 resistant varieties equate. A higher probability of seasonal outbreak than the critical probability estimated means switching to Ug99 resistant varieties would be cost-effective. A lower probability suggests that Ug99 would not pose a large enough threat to warrant switching to Ug99-resistant wheat varieties. b Estimated by dividing the switching cost by avoided losses estimated for an outbreak lasting one year. Note, the total estimated annual cost of switching to Ug99 resistant varieties ranged from $57 million (Scenario 1) and $139 million (Scenario 3) (numerator in columns 3 and 4). The total estimated cost of corresponding outbreaks ranged from $200 million (Scenario 1 without trade ban) to $511 million (Scenario 3 without trade ban) that were avoided by switching to Ug99 resistant varieties (denominator in columns 3 and 4). c Compared to Scenario 1, the critical probability increased because the estimated avoided losses increased proportionately less (33 per cent) than switching costs increased (46 per cent), however the critical probability decreased when trade impacts were included as 83 per cent of Australian wheat exports to China are sourced from south-eastern Australia. Source: ABARES modelling
The estimated critical probabilities suggest that the cost of switching to Ug99 resistant varieties
would be cost-effective, if there were at least one Ug99 outbreak within (on average) every three
to four years (equivalent to an annual critical probability between 0.25 and 0.33) while farmers
continue to plant the susceptible varieties.
Benefits to R&D in developing wheat stem rust resistant varieties
Costs avoided by switching to Ug99 resistant varieties immediately following its entry also
represents some of the benefits of past research and development (R&D) activities. New wheat
varieties continue to be developed, both nationally and in collaboration with overseas research
facilities, to provide resistance for a broad spectrum of virulent strains, so that the likelihood
and consequence of them establishing in Australia is minimised.
The effectiveness of current Ug99 resistant seed stock will diminish as more virulent strains of
Ug99 appear overseas. However, ongoing investment in activities to prevent the entry of Ug99
and other exotic strains and pre-emptive wheat breeding programs to incorporate greater
resistance, is warranted, particularly if future strains are expected to be difficult to eradicate.
Investment in enhancing early detection (surveillance and diagnostics) would also be prudent so
that wheat growers could be promptly notified of an incursion and the need to switch to a
resistant variety at the earliest instance.
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1 Introduction Wheat stem rust, caused by the fungus Puccinia graminis f. sp. Tritici (Pgt), affects the stem, leaf
and inflorescence of plants belonging to the poaceae or gramineae families (cereal crops and
other grasses). Among Australian cereal crops, the disease could affect wheat, barley, oat, rye
and triticale when seasonal conditions are favourable. The severity of the disease depends
largely on the amount of spores (reproductive units of the fungus) present at the end of the
previous planting season, likelihood of temperature reaching 15C to 30C, the prevalence of
wet conditions (Beard et al. 2006; Hollaway 2014) and the susceptibility of varieties grown.
The Pgt fungus is likely to mutate quickly when conditions are favourable (GRDC 2007a; Park
2009; Singh et al. 2011). Previous mutations overseas have resulted in the emergence of a
potentially damaging strain of Pgt in Uganda in 1999 (Park 2009; Singh et al. 2012). Named
Ug99—after the place and year of its detection—this new strain has overcome 17 out of the 34
genes found in wheat germplasm that provide for stem rust resistance (Park 2009).
Of all wheat rust fungal diseases, the one caused by Ug99 has the potential to cause the most
damage when an epidemic occurs (Dean et al. 2012). According to FAO (2014) and Singh et al.
(2011), 90 per cent of wheat varieties grown globally are susceptible to Ug99. Stem rust is likely
to reduce grain yields of susceptible varieties by 10 to 50 per cent with higher losses, up to
90 per cent, reported in rare but more severe cases (Table 1) (Beard et al. 2006). In Kenya, for
example, Hodson et al. 2005 reported farm level yield losses from Ug99 wheat stem rust of
between 15 and 30 per cent (FAO 2010) and up to 71 per cent under experimental conditions.
Table 1 Potential yield losses from stem rust
Ug99 ratings Without mitigationa
(%)
With mitigationb
(%)
Resistant 0.1 0.1
Resistant/Moderately resistant 2.5 2.4
Moderately resistant 10.0 5.0
Moderately resistant/Moderately susceptible 22.5 11.3
Moderately susceptible 37.5 9.4
Moderately susceptible/Susceptible 70.0 17.5
Susceptible 90.0 22.5
Note: Stem rust includes Ug99. Sources: a Beard et al. 2006, b Estimates based on experts' advice from CSIRO, GRDC and the Department of Agriculture and Water Resources
The Ug99 fungus is likely to spread quickly over large distances. It is generally spread by wind,
movements of infected plant materials and contaminated farm equipment. Since its appearance
two decades ago, Ug99 has spread from Uganda to a number of neighbouring countries within
eastern Africa, and also further afield to some parts of the Middle East and southern Africa. If
new rust strains were to enter Australia, the industry would be able to quickly identify it owing
to recent developments in surveillance and disease awareness (such as Rust Tracker and The
Rust Bust initiatives under the Australian Cereal Rust Control Program) leading to early
response (ACRCP 2017; CIMMYT 2017). The United States Department of Agriculture (USDA)
and Australia's Grains Research and Development Corporation (GRDC) are also working
independently on rapid identification of the genetic make-up of rust pathotypes by focussing on
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the single DNA block—which uniquely identifies one pathotype from another—or genetic
variations based on what is called Single-nucleotide polymorphism (SNP).
There are a number of ways to prevent crop losses and control the spread of the fungus within a
wheat farm. Planting a resistant variety is the most effective way to avoid crop losses (FAO
2014). If seeds from these varieties are not available, using seeds treated with fungicides and
foliar sprays of infected and susceptible paddocks could help mitigate the damage by slowing or
even containing the spread within a farm (GRDC 2007a). Herbicide sprays and livestock grazing
between two planting seasons could reduce the density of self-sown cereals and grasses in
summer—which might support the survival of the fungus through oversummering—resulting in
fewer spores available to infect the next wheat crop (Beard et al. 2006).
Ug99 could significantly impact Australia’s wheat industry—which in 2014–15 had an estimated
gross value of $7.1 billion (ABS 2016). Industry impacts include production losses, increased
cost of production and losses of export sales to Ug99-sensitive markets. However, some
Australian wheat varieties resistant to the current endemic strains of stem rust are also resistant
to Ug99—and therefore the fungus would affect only those farms growing Ug99 susceptible
varieties in areas where climatic conditions are favourable for its survival and reproduction.
Affected wheat growers are likely to undertake measures to reduce crop losses when the cost of
control measures is less than the value of the crop losses avoided. However, control measures
would still leave some production losses as it is not profitable to avoid losses completely—there
will be a point at which the value of avoided yield losses resulting from an additional unit of
chemical input (marginal return) falls below the cost of that additional unit of input (marginal
cost). Additionally, some importing countries, such as China (one of the top five destinations of
Australian wheat exports) may reduce wheat imports from Australia because of biosecurity
concerns—resulting in displaced exports being sold in other markets at a lower price.
Information on the potential economic impact of Ug99 on Australia’s wheat industry is limited.
In 1973 an epidemic of wheat stem rust in south-eastern Australia, caused by an earlier strain, is
estimated to have cost the industry between $200 million and $300 million (Watson & Butler
1984)—equivalent to between $1.8 billion and $2.7 billion in 2014–15 dollars. Several strains of
wheat rust are endemic to Australia. An outbreak of any one of these could occur in susceptible
varieties under suitable seasonal conditions. Ug99 is significantly more virulent than the strain
that caused the 1973 epidemic (Smith et al. 2009). An outbreak today similar to that of 1973 but
caused by Ug99 would likely cost industry more.
Past investments in varietal improvement have made some Australian wheat varieties generally
resistant to different strains of wheat stem rust. The current pool of Australian wheat varieties
shows significant variation in resistance to Ug99—with around 30 per cent showing moderate-
to-full susceptibility (GRDC 2017b).
To determine the likely cost of a potential Ug99 outbreak on the Australian wheat industry, it is
important to understand the potential damage Ug99 could cause and how much damage could
be avoided by pre-emptive breeding which incorporate greater resistance in wheat varieties.
This research estimates the range of potential economic impacts of an outbreak of Ug99 on the
Australian wheat industry—including losses in production, increased production costs and
potential loss of export sales. The results assist government and industry stakeholders to
evaluate the returns on investment in different biosecurity measures against Ug99—including
investments in varietal improvements to incorporate resistance against Ug99 (to reduce the
likelihood of entry) and surveillance (to enhance early detection).
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2 Background
Australian wheat industry
The wheat industry contributed about 13 per cent of Australian agricultural gross value of
production (GVP) in 2014–15 (ABS 2016). It is the number one ranked Australian broadacre
industry by value. The Australian wheat crop is also by far the largest cereal crop grown in the
country—with the 2014–15 production (23.7 million tonnes valued at about $7.1 billion)
accounting for nearly two thirds of the value of all cereal crops (ABS 2016). More than two
thirds (around 70 per cent) of Australian wheat production is exported.
Wheat is a winter crop which is grown in the south eastern wheat belt—which stretches from
southern Queensland to western South Australia—and in south west Western Australia (Figure
1). There are three main producing regions: northern, southern and western. The northern
region, which stretches from southern Queensland to northern New South Wales experiences
heavy summer rainfall.
Figure 1 Australia’s wheat growing regions
Note: Data and boundaries sourced from GRDC. Source: ABARES modelling
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The southern region stretches from southern New South Wales through Victoria, South Australia
to Tasmania. The western region, which includes all wheat growing areas in Western Australia,
is separated from the other regions.
On a global scale, Australia is a relatively small producer but a major exporter of wheat—
contributing 3 per cent and 11 per cent of global production and exports, respectively by value
in 2014–15 (ABARES 2016).
About 80 per cent of Australian wheat is exported to 10 countries (AEGIC 2016). Key
destinations are all in the Asian region: particularly Indonesia and Vietnam in the South-East;
and China, Japan and the Republic of Korea in the North. Canada and the United States also
export to these markets. However, Australia maintains the largest market share of all countries
exporting to the Asian region, especially to Indonesia, with a market share of about 56 per cent
in 2015 (Trade Map 2016).
Vulnerability of wheat growing areas to wheat stem rust
International vulnerability
Wheat stem rust is present in many wheat growing areas throughout the world. According to
Pardey et al. (2013), about two-thirds of global wheat growing areas are climatically suitable for
the disease. Its spread depends on the suitability of the climate, susceptibility of wheat varieties,
presence of other host plants, and movement of spores over long distances (Fisher et al. 2012).
The areas vulnerable to the disease are either seasonal or persistent. In Figure 2, seasonally
vulnerable areas are in blue and persistently vulnerable areas are in red.
Figure 2 Global stem rust vulnerability
Note: Blue areas represent seasonally vulnerable areas while red areas represent persistently vulnerable areas. Source: Pardey et al. 2013
In seasonally vulnerable areas, the fungus mostly survives throughout a growing season but not
beyond. In persistently vulnerable areas, the fungus demonstrates an extended longevity to
survive through non-growing seasons to infect the next planting season.
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Domestic vulnerability
There are four documented outbreaks of wheat stem rust that occurred in Australia: 1889, 1899,
1947-48 and1973 (Dubin and Brennan 2009). The 1973 outbreak in south-eastern Australia is
believed to have been the most damaging. Started in South Australia, the outbreak quickly
spread to Victoria, New South Wales and parts of Queensland. It reduced the value of the 1973
Australian wheat production by 25 to 35 per cent (Dubin & Brennan 2009), costing around $200
million to $300 million (Watson and Butler 1984).
According to studies conducted at the University of Sydney, the first incursion of a new strain of
wheat stem rust in Australia occurred in 1925 (Park 2009). Three more incursions followed,
carrying three new strains: one in 1954 and two in 1969—all believed to be from Africa (Watson
and de Sousa 1983). The two 1969 introductions are believed to have been transported from
central Africa to Australia by wind (Watson and de Sousa 1983). Annual surveys of cereal rust
conducted by the University of Sydney since 1969 have detected several new strains—and all
are believed to have been derived from the 1954 and 1969 introductions (Park 2009).
Ug99 endemic and high risk areas
Of the various wheat stem rust strains present, Ug99 has the potential to cause the most damage.
Since its emergence in Uganda in 1999, Ug99 has spread to eastern and southern Africa and
parts of the Middle East (Yemen and Iran) within a decade (Singh et al. 2015). According to the
Food and Agriculture Organisation (FAO), the wheat growing areas in North Africa, the rest of
Middle East, and west and south Asia are potential new habitats for Ug99 (Figure 3).
Figure 3 Ug99 endemic and high risk areas
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Although not present in Australia, the Ug99 fungus currently present in endemic areas,
particularly in southern Africa, could act as a potential source for the long distance movements
of the disease to other countries, including Australia (Park 2010; Singh et al. 2011). Evidence
suggests that the westerly wind could carry fungal spores over long distances as far as Australia
(Luig 1985; Prospero et al. 2005; Watson and de Sousa 1983).
Wheat breeding to incorporate resistance to stem rust
Preparedness activities for wheat stem rust strains including Ug99 comprise surveillance
(particularly annual surveying), monitoring (of pathogen populations over time to track
potential virulence evolution), and in particular, pre-breeding (for germplasm resistance) (Park,
2009). New wheat varieties continue to be developed, both nationally and in collaboration with
overseas research facilities, to provide resistance for a broad spectrum of virulent strains, so
that the likelihood and consequence of them establishing in Australia is minimised.
Prior to 1938 wheat varieties used had no resistance to wheat stem rust, and research to
incorporate resistance began in earnest during the early part of the 1938–1964 period, when
varieties incorporating a single gene for resistance were released (Luig and Watson 1970; Park
2007). Since 1965, and faced with the potential arrival of more new strains with increased
virulence, varietal improvements focussed on broadening the genetic base of resistance (Luig
and Watson 1970). This resulted in the release of varieties with resistance against a broad
spectrum of strains. The 1973 outbreak of wheat stem rust provided further impetus to continue
along that path, and varieties incorporating a number of resistance genes have since been
released. This has resulted in fewer wheat stem rust incidences since the 1973 outbreak.
The Australian Cereal Rust Control Program—which has been working on better understanding
the potential response of Australian wheat germplasm against Ug99—has undertaken field
testing of Australian wheat germplasm in Kenya with the assistance of Kenyan Agricultural
Research Institute. The results of these efforts contribute to breeding activities aimed at
developing varieties resistance to Ug99.
Public and private sector investments in wheat breeding
Historically, wheat breeding investment has been the domain of the public sector—with a share
of 95 per cent in 1985 (Kingwell 2005). According to Jefferies (2012) the private sector share
did not increase much by 2000. The lack of institutional arrangements to facilitate the
appropriation of returns from wheat breeding has been the key barrier in private sector
investment. The government’s provision of intellectual property (IP) protection for research and
development (R&D) in agriculture is a relatively recent development.
Plant breeders rights (PBR) to protect new varieties were not introduced until 1994—when new
legislation was passed to introduce a range of measures, including end-point royalties (EPR).
EPRs are imposed on output produced each year the new variety is planted, and are used by
most plant breeders to appropriate returns on plant breeding investment.
Under the EPR arrangements, farmers buy seed from an agent authorised by the PBR owner
under a contractual arrangement to pay a royalty on all grains produced except the amount
saved for seed. When the saved seed is planted, the farmer is required under the contract to pay
the EPR on the resulting output. In return for paying the royalty, the farmer derives the benefits
from growing a wheat variety bred to express desirable attributes such as higher yield, superior
quality and processing characteristics and resistance to pest and disease.
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Private sector participation increased since the introduction of end-point royalties, with the first
private sector bred wheat variety ‘Goldmark’ released in 1996 (Thomson 2013). The share of the
Australian wheat crop produced with varieties contracted under EPR arrangements increased to
71 per cent in 2010 (Jefferies 2012) and to 80 per cent in 2017 (Terence Farrell, GRDC, personal
communication, April 2018). There are now over 140 varieties currently being adopted by
Australia wheat growers under the end-point royalty arrangement (VarietyCentral 2018).
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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3 Methodology ABARES estimates the economic impact of a Ug99 wheat stem rust outbreak on the Australian
wheat industry, using spatial analysis and economic modelling.
Spatial mapping and modelling was used to determine the likelihood of Ug99 establishing in
different wheat growing areas of Australia—estimated at a small geographical scale (1km x
1km)—based on climatic suitability and varietal susceptibility. The likelihood values of the
spatial mapping and modelling served as inputs for the economic modelling to estimate supply
shocks. Demand shocks were represented by potential loss of export sales to Ug99-sensitive
countries. Partial equilibrium model results were used to estimate the economic impact of Ug99
on the Australian wheat industry for three disease spread scenarios.
Spatial mapping and modelling
Climate suitability rating
The likelihood of Ug99 establishing in a wheat growing area depends on the susceptibility of
varieties grown and suitability of its climate to the fungus. ABARES used the CLIMEX habitat
suitability model (Sutherst et al. 2007) to rate the climatic suitability of different wheat growing
areas in Australia. Using temperature and moisture stress threshold parameter values specified
in Beddow et al. (2013), ABARES produced a spatial dataset of eco-climatic index scores—which
measure the relative climatic suitability of different wheat growing areas. The different wheat
growing areas were grouped into three discrete climatic suitability classes based on two
thresholds of the eco-climatic index score (0 and 88): not suitable (equal to 0), moderately
suitable (greater than 0 to10) and highly suitable (greater than 10). Figure 4(a) shows the
spatial distribution of wheat growing areas belonging to the three suitability groups.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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Figure 4 Spatial data (maps) used in the estimation of the likelihood of Ug99 establishing in Australia’s wheat growing areas
Source: ABARES modelling
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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Varietal susceptibility rating
While climatic suitability data is available on a small geographical scale (1km x 1km), varietal
susceptibility data is only available at much larger agro-ecological zone level (Figure 4b).
The GRDC has compiled an agro-ecological zone level varietal susceptibility dataset by
combining two datasets: (i) 2014–15 wheat receivals at depots owned by marketers across
Australia (disaggregated by varieties); and (ii) Ug99 ratings of wheat varieties grown—available
in a dataset developed and maintained by the Australian Cereal Rust Control Program. The GRDC
dataset defined seven susceptibility ratings: resistant (R), resistant to moderately resistant
(R/MR), moderately resistant (MR), moderately resistant to moderately susceptible (MR/MS),
moderately susceptible (MS), moderately susceptible to susceptible (MS/S) and susceptible (S).
The GRDC varietal susceptibility dataset contains, for each agro ecological zone, the percentage
distribution of wheat production by seven susceptibility ratings.
To simplify ABARES spatial modelling requirements, the GRDC’s seven susceptibility ratings
were reduced to five susceptibility ratings: very low, low, moderate, high and very high. The
manner in which the production shares (percentages) under some of the GRDC susceptibility
ratings were added to produce a dataset with only 5 susceptibility ratings is presented in Figure
5.
Figure 5 Ug99 wheat varietal susceptibility ratings in 2014–15
Source: ABARES modelling
It is assumed that susceptibility is measured on a scale of zero to one and the five susceptibility
groups represent the five equal interval classes: very low (0—0.20), low (0.21—0.40), moderate
(0.41—0.60), high (0.61—0.80) and very high (0.81—1.00). Figure 4(c) shows the spatial
distribution of wheat growing areas belonging to the five varietal susceptibility groups.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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Likelihood of a Ug99 outbreak in Australia
ABARES used its Multi-Criteria Analysis Shell for Spatial Decision Support (MCAS-S) model to
rate the likelihood of a Ug99 outbreak for different wheat growing areas—using spatial datasets
on climatic suitability ratings and varietal susceptibility ratings as inputs (the data underlying
Figure 4(a) and Figure 4 (c)). The outbreak likelihood of each wheat growing area was rated as
either very low, low, moderate, high or very high.
Varietal susceptibility and climate suitability are both measured using interval scales with
intervals set arbitrarily—the former with 5 equal intervals and the latter with three unequal
intervals. One of the disadvantages of interval scales is the inability to define a measurable
(ratio) relationship between two classes. Taking the varietal susceptibility scale as an example,
ABARES has no evidence to treat varieties rated ‘low susceptible’ are twice as susceptible as
varieties rated ‘very low susceptible’, even though the particular interval scale chosen may
suggest this. Similarly, there is no evidence based method to measure how much less suitable a
locality with ‘moderately suitable’ climate for the fungus is compared to a locality with a ‘highly
suitable’ climate. This inability to define ratio relationships between ratings raises a question as
to the best way to combine varietal susceptibility ratings and climatic suitability ratings. There
could be a number of alternative ways the measurements made on the two scales can be
combined. In this study, ABARES chose to combine the two ratings in the manner presented in
Table 2 leading to 5 ordinal classes of Ug99 likelihood ratings (very low, low, moderate, high and
very high). The spatial distribution of wheat growing areas by likelihood group is presented in
Figure 4(d).
Table 2 Ug99 likelihood ratings produced by linking climatic suitability and varietal susceptibility ratings
Varietal susceptibility Climatic suitability
Unsuitable (0) Moderate (0<—10) High (>10)
Very high (0.81—1.00) Moderate High Very high
High (0.61—0.80) Low Moderate High
Moderate (0.41—0.60) Very low Low Moderate
Low (0.21—0.40) Very low Very low Low
Very low (0—0.20) Very low Very low Very low
The geographical distribution shows a marked difference in the likelihood of a Ug99 outbreak
across Australia's wheat growing regions. An outbreak is moderately to highly likely in most
wheat growing areas of central Western Australia and low to moderately likely in most wheat
growing areas of South Australia, and relatively less likely in most wheat regions of Victoria. The
northern wheat region—comprising the southern parts of Queensland and northern parts of
New South Wales—is less likely to have a Ug99 outbreak, largely reflecting the low climatic
suitability for the fungus. However, the southern New South Wales wheat growing regions,
particularly the New South Wales Victorian slope region (Figure 4b), are highly likely to have a
Ug99 outbreak reflecting very highly susceptible wheat varieties planted. The likelihood map in
Figure 4(d) is consistent with the wheat stem rust extent observed during the 1973 outbreak—
with a major impact in the southern region and a minor impact in the northern region (Luig
1985).
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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Economic modelling
Economic modelling involves determining the magnitude of the supply shocks (yield losses and
mitigation costs) and demand shocks (reduction in exports). ABARES determines the supply
shocks by linking Ug99 likelihood measures—estimated through spatial modelling—with yield
losses and increased costs of mitigation inputs. The demand shock was determined by
identifying importing countries likely to ban imports of Australian wheat and calculating the
share of Australian exports destined to their markets. ABARES incorporated these estimated
supply and demand shocks into a partial equilibrium model of Australian wheat markets to
estimate the market and economic impacts.
ABARES drew heavily from its own database, GRDC and the Australian Bureau of Statistics (ABS)
for most of the economic data required for the study. It relied on experts in the Departments of
Agriculture in different states, the Department of Agriculture and Water Resources, GRDC and
CSIRO, and also private consultants on some of the parameters.
For each agro-ecological zone, ABARES used the average wheat price estimated over the five
years to 2014–15.
Supply shocks
Supply shocks—average wheat yield loss and increased production cost—were estimated for
each agro-ecological zone. Average yield loss was calculated by averaging yield losses assumed
for the five likelihood groups using the proportions of wheat areas under different likelihood
groups as weights. The yield loss assumptions for different likelihood groups (given in Table 3
below) are based on potential yield losses for wheat varieties with different resistant levels
(based on estimates by Beard et al. (2006) and expert advice (reproduced from Table 1)).
Table 3 Assumptions of yield losses by Ug99 likelihood ratinga
Likelihood rating Without mitigation
(%)
With mitigation
(%)
Very low 2.5 2.4
Low 10.0 5.0
Moderate 37.5 9.4
High 70.0 17.5
Very high 90.0 22.5
Notes: a ABARES developed these assumptions by assigning each likelihood rating a yield loss based on the range of yield losses given for varieties with different resistant ratings in Table 1. In selecting a yield loss estimate, each likelihood rating in Table 3 is paired with the most appropriate varietal resistant rating in Table 1: very low likelihood—resistant/moderately resistant; low likelihood—moderately resistant; moderate likelihood—moderately susceptible; high likelihood—moderately susceptible/susceptible; very highly likely—susceptible.
The study uses two maximum potential yield loss values—a higher value without mitigation and
a lower value with mitigation—resulting in two sets of average expected yield losses at agro-
ecological zone level.
ABARES undertook a simple partial budgeting analysis to determine, for each region, whether
the average gross revenue saved from mitigation would be greater than the increased costs of
production (from surveillance and fungicide costs). Where this was the case, the expected wheat
yield loss with mitigation and corresponding increased production costs were used to determine
the supply shock for that region.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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This approach helped avoid the potential overestimation of the consequences of Ug99—by
accounting for the yield losses avoided through the profitable use of mitigation inputs in
estimating the supply shocks.
Table 4 presents the state level average impacts of Ug99 in lowering yield and increasing the
cost of production. The per-hectare yield losses and cost increases estimated provide the supply
shocks needed in simulating the impacts of Ug99.
Table 4 Average supply shocks estimated for key wheat growing states for the hypothetical Australia-wide outbreak, at 2014–15 prices
Average yield Yield decline Mitigation costs
Region (t/ha) (t/ha) ($/ha)
NSW 2.08 0.21 12.63
QLD 1.74 0.04 0.00
SA 2.10 0.10 8.58
VIC 1.87 0.08 7.75
TAS 5.31 0.13 0.00
WA 1.75 0.15 10.00
Australia 1.92 0.14 9.72
Note: Mitigation costs comprise surveillance and fungicide costs. Source: ABARES modelling
ABARES assumed that additional fungicide input is required only in medium to low rainfall areas
as fungicides normally used in high rainfall areas to control other fungal diseases would act as
an effective control for Ug99 as well. The cost of fungicides in medium to low rainfall areas is
assumed to double. Fungicide cost estimates were based on those reported in wheat enterprise
budgets published by the state Departments of Agriculture. ABARES also assumes that farmers’
efforts in monitoring the spread of Ug99 within their wheat paddocks over the outbreak
duration would add up to two days. This two-day monitoring cost was estimated using standard
agricultural wage rates.
ABARES also estimated the cost of switching to Ug99 varieties, which included a one-off seed
cost and the end-point royalty payment on the output produced in each year the new variety is
grown. The Ug99 resistant variety is assumed to produce the same yield as the susceptible
variety that it replaced, however, the increased seed cost still constitutes a supply shock as
farmers are expected to cut back production at the margin to accommodate it.
Demand shocks
Demand shocks are the potential reductions in Australian wheat exports arising from overseas
bans on Australian wheat imports in response to an Ug99 outbreak. ABARES sought the views of
experts in the Department of Agriculture and Water Resources, GRDC and consultants to identify
the countries that would ban Australian wheat imports. The experts were unanimous that hardly
any country would do this. They gave the reasons that:
the fungus is not seed-borne, so wheat grains pose no threat as carriers
the spores have a relatively short life, so any mixed with exported wheat would not survive long enough to reach wheat growing areas in overseas countries.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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Although there is a negligible risk of exported wheat grains carrying the fungus, the study
assumes China (also a wheat growing country) might consider banning Australian wheat as a
precautionary measure. ABARES assumes Australian wheat exports which were denied access to
China, would be subsequently sold to other overseas markets at a lower price.
ABARES assumes affected states would lose their wheat sales to China. Estimated as a
percentage of Australian exports, West Australian exports to China accounted for 1 per cent
(Scenario 1), all eastern state exports 5 per cent (Scenario 2) and therefore Australian exports 6
per cent (Scenario 3). It also assumes that Australia will regain access to Chinese markets once
the current Ug99 strain was eliminated from all wheat growing areas.
Development of Ug99 spread scenarios
The economic impact of Ug99 on the Australian wheat industry was estimated for three disease
spread scenarios, based on the extent of spread of the Ug99 fungus. It is assumed that the
outbreak simulated in all three scenarios would only last one year as all affected farmers would
plant resistant varieties in the following year. It is possible that some affected farmers would
plant other crops, however, this is not considered in this analysis for simplicity.
Spread process
The study assumes Ug99 enters either Western Australia or South Australia through one of the
human-mediated pathways (via clothing or infected plant material) or from fungal spores
carried by wind from an infected country. The fungus is transported to Esperance if it enters
Western Australia or Ceduna if it enters South Australia, where it establishes populations in
suitable habitats provided by all potential host species, including wheat. Historically, Esperance
is an area prone to wheat stem rust (Beard et al. 2006), while Ceduna was identified as the
starting point of the 1973 outbreak. For simplicity, the study assumes that once detected, Ug99
has already spread beyond the point of eradicating it from all host species. The fungus continues
to spread progressively to neighbouring wheat growing areas further afield, transported by
wind and human-mediated means (such as movements of farm equipment).
Adoption of Ug99 wheat resistant varieties
Some Australian grown wheat varieties that are resistant to the current endemic strains of stem
rust are also resistant to Ug99. The 2014–15 wheat receivals data shows that around 22 per cent
of Australia’s wheat crop in that year came from varieties showing moderate to full resistance to
Ug99 (see Figure 5) (GRDC 2017b).
Non-adoption of Ug99 varieties may be due to a number of reasons:
resistance to Ug99 by itself may not be a criterion in choosing a wheat variety as this fungus strain is not yet present in Australia
in addition to pest and disease resistance, factors such as potential yield, protein content and other marketable attributes of the grain may affect choice
adopting a new variety costs the farmer in terms of the one-off seed cost and annual end-point royalty payments—farmers are expected to switch variety only when expected benefit exceeds the cost.
In responding to an outbreak, the study assumes all wheat growers would eventually replace
susceptible varieties with resistance varieties, leading to the elimination of Ug99 from their
wheat paddocks. This adjustment process is assumed to take just one year and involves the use
of fungicide inputs as an interim measure to mitigate yield losses from the growing crop. An
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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ongoing incursion of Ug99 would likely provide a strong economic incentive for those growers
still planting susceptible varieties to switch over to resistant ones in the following season. That
incentive is expected come from avoided losses from all future outbreaks of Ug99 exceeding the
cost of switching.
Ug99 resistant varieties are currently available and in use in Australia (GRDC 2017b) and
adequate stocks of seed are available for all growers to plant them in the next season. In 2016–
17, about 6 per cent of wheat produced in Australia was fully resistant to Ug99 and around 16
per cent were moderately to fully resistant (GRDC 2017b). Combined, Ug99 resistant varieties
produced 1.6 million tonnes of wheat in 2016–17 which is significantly more than the wheat
seed required (around 1.0 million tonnes annually), if Australia’s entire wheat area was to be
planted with Ug99 resistant varieties (GRDC 2017b). Seed usage is one of several uses of wheat
produced from Ug99 resistant varieties. Although not modelled in this study, a large-scale
increased demand for seed use following a Ug99 incursion is expected to drive up the price of
seed and therefore the one-off cost of Ug99 resistant seeds for those farmers switching over to
these varieties.
Spread scenarios
When Ug99 establishes in Esperance, the physical separation of wheat growing areas in Western
Australia from those in the rest of Australia generally lends itself to containing and then
eliminating the outbreak from wheat growing areas in that state. By contrast, when Ug99
establishes in Ceduna in South Australia—with no such physical barrier—the fungus could
spread unhindered to all wheat growing areas in southern and northern regions. The study also
considers the possibility of long distance dispersal of the fungus from Western Australia—with
the Esperance outbreak also spreading to wheat growing areas in the rest of Australia (Park and
Cuddy 2015), resulting in an Australia-wide disease event. For all outbreaks, as explained in the
last section, the study assumes one year would be long enough for all affected wheat growers to
replace susceptible with resistant varieties—leading to the elimination of Ug99 from all affected
wheat paddocks by the following year.
ABARES considered three possible disease spread scenarios:
Scenario 1: An outbreak originating in Esperance, spreading rapidly to all wheat-growing areas in the western region and lasting one year before complete elimination from paddocks
Scenario 2: An outbreak originating in Ceduna, spreading rapidly to all wheat-growing areas in the southern and northern regions of Australia and lasting one year before complete elimination from paddocks
Scenario 3: An outbreak originating in Esperance, spreading rapidly due to westerly winds, developing into an Australia-wide outbreak and lasting one year before complete elimination from paddocks.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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4 Economic impacts The study estimates the economic impacts of Ug99 on the Australian wheat industry in terms of
the reduction in gross revenue plus increased cost of production over a 10 year period. For each
scenario and year, reduction in gross revenue is equal to the difference between the gross
revenue for that scenario and the gross revenue for the ‘do-nothing’ (or base-case) scenario. In
the year of outbreak, costs of production for Ug99 infected crops, are expected to increase as
farmers increase the use of fungicides to treat the fungus and labour for increased surveillance.
Adoption of resistant varieties over the subsequent years involves the one-off seed cost in the
year immediately following the outbreak, and the payment of end-point royalty in all years the
new variety is planted.
Changes in quantity produced and price received
The quantity of wheat produced in the outbreak year decreased in all scenarios modelled
because of the effect of simulated supply shocks (Table 5). The estimated decreases were larger
(up to 6 per cent) for a larger outbreak. In Scenario 1 and 3, wheat price increased even with the
trade ban as the effects of supply reduction more than offset the effects of reduction in Chinese
demand for Australian wheat. The two offsetting effects worked in opposite direction in
Scenario 2 and wheat price decreased with the trade ban. Estimated wheat price increases were
slightly larger (up to 0.84 per cent) for a larger outbreak but smaller with a trade ban included
(Table 5). Farmers had already implemented their production decisions when wheat destined
for export to China was diverted to lower price markets—and therefore production remained
unchanged at without trade ban levels.
Table 5 Effect of hypothetical Ug99 outbreaks on equilibrium wheat production and price
Without trade ban (% change) With trade ban (% change)
Scenarios Price Production Price Production
1 0.35 -2.45 0.25 -2.45
2 0.47 -3.23 -0.04 -3.23
3 0.84 -5.70 0.23 -5.70
Notes: Equilibrium wheat production and price represents the price and quantity at which the market cleared. Scenario 1 is the Esperance outbreak, which spreads quickly to all wheat growing areas in the western region. Scenario 2 is the Ceduna outbreak, which spreads quickly to all wheat growing areas in the southern and northern wheat regions. Scenario 3 is the Esperance outbreak, which, aided by westerly winds, spreads quickly beyond Western Australia to cover all Australian wheat growing areas. Source: ABARES modelling
The economic impact on the wheat industry
Revenue losses
Gross revenue losses are not limited to the Ug99 outbreak year. Additional costs associated with
Ug99 resistant seeds used from the following year (one-off seed cost and annual end-point
royalty payments) mean farmers are expected to cut back production at the margin until the
cost of producing the last tonne of wheat (marginal cost) equals its price (marginal revenue).
The reduction in revenue attributed to reduced production (arising from higher seed cost) over
the following nine years is also estimated—in present value terms using a 7 per cent discount
rate.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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In the year of outbreak, gross revenue losses increase with the size of the hypothetical outbreak, and to a lesser extent, with the trade ban on wheat (Table 6). Estimated losses in industry gross revenue were $150 million for the Western Australia outbreak, $198 million for the south-eastern Australia outbreak and $350 million for the Australia-wide outbreak (Scenarios 1, 2 and 3, respectively)—all without an import ban being imposed on Australian wheat by other countries. With an import ban by China, estimated gross revenue losses in each scenario were slightly higher.
Over the following 9 years, estimated total losses in industry gross revenue (arising from production cutback to accommodate increased cost of production of Ug99 varieties) were $202 million for the Western Australia outbreak, $295 million for the south-eastern Australia outbreak and $487 million for the Australia-wide outbreak (Scenarios 1, 2 and 3, respectively)—both with and without trade ban.
In total, estimated losses in industry gross revenue were $352 million for the Western Australia outbreak, $493 million for the south-eastern Australia outbreak and $837 million for the Australia-wide outbreak (Scenarios 1, 2 and 3, respectively)—all without an import ban being imposed on Australian wheat by other countries. With an import ban by China, estimated revenue losses in each scenario were slightly higher.
Table 6 Revenue losses from hypothetical outbreak scenariosa, at 2014–15 prices
Scenarios Extent of spread Without trade ban ($m) With trade ban ($m)
First year – the cost of the outbreak
1 Western Australia 150 157
2 south-eastern Australia 198 233
3 Australia 350 391
Next 9 years – with Ug99 resistant varietiesa
1 Western Australia 202 202
2 south-eastern Australia 295 295
3 Australia 487 487
Total over 10 yearsa
1 Western Australia 352 359
2 south-eastern Australia 493 528
3 Australia 837 878
Note: a in present value terms estimated at a 7 per cent discount rate. Source: ABARES modelling
Increased cost of production
In the year of outbreak, the cost of production increases as farmers increase the use of
fungicides to treat the fungus and labour for increased surveillance. The subsequent planting of
Ug99 resistant varieties incurs one-off seed cost in the following year and end-point royalty
payment for each year the new variety is planted. The contractual arrangements with the plant
breeder right (PBR) holder for the Ug99 resistant variety allow farmers to use saved seed in all
following years as they pay end-point royalty on each year’s production. Table 7 presents
increased cost of production in the year of outbreak (column 3), present value of one-off seed
cost incurred in the following year (column 4) and the present value of all annual end-point
royalty payments made over the 9 years following the outbreak (column 5). All present values
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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are estimated using a 7 per cent discount rate. Estimated increases in total cost of production
over 10 years were $215 million for the Western Australia outbreak, $310 million for the south-
eastern Australia outbreak and $525 million for the Australia-wide outbreak (Scenarios 1, 2 and
3, respectively)(Table 7).
Table 7 Increased cost of production over 10 yearsa, at 2014–15 prices
Scenarios Extent of spread
Increased cost for the current
crop ($m)
One-off seed cost of the
following cropb ($m)
Additional plant breeder
royalty paymentsc over
9 years ($m)
Total
($ m)
1 Western Australia
50 85 80 215
2 south-eastern Australia
70 114 126 310
3 Australia 120 199 206 525
Note: a in present value terms estimated at a 7 per cent discount rate. b estimated assuming a seed rate of 40Kg/ha, a price of $450/tonne and that all varieties other than those fully resistant to Ug99 will be replaced. c assumes all varieties other than those fully resistant to Ug99 will be replaced, an 80:20 percent split between wheat produced with and without end-point royalty, all varieties without end-point royalty (accounting for 20 per cent of wheat produced) are susceptible and will be replaced with Ug99 resistant varieties at an end-point royalty of $3 per tonne and the replacement of other susceptible varieties currently under end-point royalties with Ug99 resistant varieties incurs an additional plant breeder royalty of $1/tonne. Source: ABARES modelling
Total economic costs to the wheat industry, after adding the total increase in cost of production
to the revenue losses, are given in Table 8. Estimated economic losses were $567 million for the
Western Australia outbreak, $803 million for the south-eastern Australia outbreak and $1,362
million for the Australia-wide outbreak (Scenarios 1, 2 and 3, respectively)—all without an
import ban being imposed on Australian wheat by other countries. With an import ban by China,
estimated economic losses in each scenario were slightly higher.
Table 8 Total economic cost (revenue losses and increased cost of production) from hypothetical outbreak scenarios 10 yearsa, at 2014–15 prices
Scenarios Extent of spread Without trade ban ($m)b With trade ban ($m)b
1 Western Australia 567 574
2 south-eastern Australia 803 838
3 Australia 1,362 1,403
Note: a present value estimated at a 7 per cent discount rate. b total revenue losses over 10 years (Table 6) plus total increase in cost of production (Table 7). Source: ABARES modelling
Benefits from prevention
If Ug99 enters, establishes and spreads, it is estimated to cost the wheat industry between
$567 million and $1,403 million over 10 years, depending on the point of entry, outbreak extent
and whether an import ban is imposed (Table 8). This cost includes the cost of an outbreak
lasting one year immediately after the entry of Ug99 plus the cost of adopting resistant varieties
over a 9 year period. As Ug99 is not present in Australia and given the uncertainty around its
entry to Australia, the expected (probability weighted) value of these costs have been used to
approximate the gross benefits of prevention.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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To take into account the likelihood of incursion and establishment, ABARES took into account
previously reported wheat stem rust incursions in Australia. There have been three exotic wheat
stem rust incursions over the 63 years to 2017—which is equivalent to a one in about 20 year
event (or an annual incursion probability of 0.05). Applying this probability to the estimated
total economic cost for the three scenarios in Table 8, and assuming 100 per cent likelihood of
establishment and spread, the expected gross benefits of investment in activities to continue to
prevent the entry of Ug99 are estimated to range from $28 million to $70 million a year.
Benefits from adopting Ug99 resistant varieties
Were it to enter, Ug99 would likely become endemic in Australia. If not for resistant varieties,
the fungus would likely cost the wheat industry considerably more, as farmers that continued to
grow susceptible varieties would continue to be affected, whenever seasonal conditions were
favourable for the Ug99 fungus to cause an outbreak.
This section compares the cost of a Ug99 outbreak lasting one year (whereby farmers do not
change wheat varieties planted that year) against the annual cost of adopting Ug99 resistant
varieties by all farmers in the outbreak area. Again, the three hypothetical scenarios were
modelled—except in this case, each outbreak was assumed to last one year as seasonal
conditions are assumed to be unsuitable for the virus in the following year.
The total costs of the outbreak (gross revenue losses plus the increased cost of production) are
given in Table 9. Estimated costs were $200 million for the Western Australia outbreak, $268
million for the south-eastern Australia outbreak and $470 million for the Australia-wide
outbreak (Scenarios 1, 2 and 3, respectively)—all without an import ban being imposed on
Australian wheat by other countries. With an import ban by China, estimated economic losses in
each scenario were slightly higher. These costs could be overestimates as some affected farmers
may have replaced the susceptible wheat crop with another non-wheat crop more profitably
than switching to an Ug99 resistant variety.
Table 9 Total cost of hypothetical outbreaks lasting one year
Scenarios Extent of spread Without trade ban ($m)a With trade ban ($m)a
1 Western Australia 200 207
2 south-eastern Australia 268 303
3 Australia 470 511
Note: a gross revenue losses in the year of outbreak (Table 6) plus the increase in cost of production in that year (Table 7 Increased cost for the current crop-column 3). Source: ABARES modelling
Switching to resistant varieties would involve costs incurred on a yearly basis: the annual
equivalent of the one-off seed cost; end-point royalty payment (made for each tonne of grain
produced) and the gross revenue losses arising from production cut back to accommodate
increased cost of production of Ug99 resistant varieties. These annual costs are given in Table
10.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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Table 10 Annual costs of adopting Ug99 resistant varieties
Scenario Extent of spread Seed costa ($m/year)
End-point royaltyb
($m/year)
Revenue lossesc
($m/year)
Total cost ($m/year)
1 Western Australia 14 12 31 57
2 south-eastern Australia
19 19 45 83
3 Australia 33 31 75 139
Note: a One-off seed cost (in Table 7) annualised, using a 7 per cent discount rate. b estimated assuming that all varieties other than those fully resistant to Ug99 will be replaced, an 80:20 percent split between wheat produced with and without end-point royalty, all varieties without end-point royalty (accounting for 20 per cent of wheat produced) are susceptible and will be replaced with Ug99 resistant varieties at an end-point royalty of $3/tonne and the replacement of other susceptible varieties currently under end-point royalties with Ug99 resistant varieties incurs an additional end-point royalty of $1/tonne. c Total revenue losses associated with the adoption of Ug99 varieties (in Table 6) annualised using a 7 per cent discount rate. Source: ABARES modelling
The estimated cost of switching to Ug99 resistant varieties were $57 million for the Western
Australia outbreak, $83 million for the south-eastern Australia outbreak and $139 million for the
Australia-wide outbreak (Scenarios 1, 2 and 3, respectively). These costs were much smaller
than the total cost of corresponding outbreaks given in Table 9 ($200 million, $268 million and
$480 million, respectively even without the trade ban) that were avoided by switching to Ug99
resistant varieties. However, an Ug99 outbreak would not occur every year even if farmers
continued to grow susceptible varieties despite the fungus becoming endemic to Australia. An
outbreak would occur only when seasonal conditions are conducive for the fungus.
For switching to resistant varieties to be profitable in the long run, the annual expected benefit
(the cost of Ug99 outbreak that is avoided times the annual probability of an Ug99 outbreak
under endemic state) should exceed the cost of switching. In the absence of information on
annual probability of an outbreak under endemic state ABARES estimated the critical
(breakeven) annual probability of outbreak that equates the expected benefit to annual cost of
switching (Table 11). Critical annual probabilities are estimated by dividing the cost of switching
(given in the last column of Table 10) by the corresponding avoided losses estimated for an
outbreak lasting one year (given in the last two columns of Table 9).
Table 11 The critical probability that equates the annual cost of switching to Ug99 resistant varieties to benefits
Scenario Extent of spread Critical probabilitya
(without trade ban)
Critical probabilityb
(with trade ban)
1 Western Australia $57m/$200m = 0.285 $57m/$207m = 0.275
2 south-eastern Australia $83m/$267m = 0.309c $83m/$303m = 0.274
3 Australia $139m/$470m = 0.295 $139m/$511m = 0.272
Note: a estimated by dividing the switching cost given in the last column of Table 10 by the avoided losses estimated for an outbreak lasting one year given in the third column of Table 9. b estimated by dividing the switching cost given in the last column of Table 10 by the avoided losses estimated for an outbreak lasting one year given in the fourth column of Table 9. c compared to Scenario 1 the critical probability increased because the estimated avoided losses increased proportionately less (33 per cent) than switching costs increased (46 per cent), however the critical probability decreased when trade impacts were included as 83 per cent of Australian wheat exports to China are sourced from south-eastern Australia. Source: ABARES modelling
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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The estimated critical probabilities suggest that the cost of switching to Ug99 resistant varieties
would be worthwhile—if there is at least one Ug99 outbreak within (on average) every three to
four years (equivalent to a critical annual probability between 0.33 and 0.25) while farmers
continue to plant the susceptible varieties.
Key limitations
The economic impacts discussed in this chapter are measures aggregated to national level from
those resulting from a bottom-up approach. The process started with the Ug99 likelihood
estimates made at a small geographical scale (1km x 1 km) feeding in to estimates of economic
impacts first made at an agro-ecological zone level and then at a state level and finally at the
national level. The estimates could be sensitive to various parameter assumptions made and
methods used at different levels. The results could be most sensitive to the somewhat arbitrary
method employed in combining interval scale measures of varietal susceptibility and climate
suitability in the derivation of ordinal measures of Ug99 likelihood—and the subsequent
mapping of these ordinal likelihood measures to cardinal measures of supply shocks used in the
partial equilibrium model. The geographical distribution of the likelihood of a Ug99 outbreak
obtained in this study may have been influenced by the particular method chosen (as illustrated
in Table 2) to combine the varietal susceptibility ratings with climate suitability ratings. This
means, were an alternative method used a different geographical distribution of Ug99 likelihood
and a different set of economic impact estimates could have resulted, and therefore it is
desirable to conduct sensitivity analysis. Further research is needed to develop a robust method
to map variables measured on an ordinal scale to a variable measured on a cardinal scale. This
has a particular relevance to research employing a bottom-up bio-economic modelling approach
like the estimation of economic impacts of biosecurity threats.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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5 Conclusions The release of wheat varieties resistant to a broad spectrum of virulent strains of the wheat stem
rust fungus, has contributed to Australia remaining free of major outbreaks of wheat stem rust
since 1973. However, this is likely to change if Ug99 enters, as the level of protection provided
by the current mix of varieties with varying level of resistance is expected to fall.
The availability of adequate seed stocks of resistant varieties could limit the economic impact of
an outbreak to just one season, as growers still planting susceptible varieties would have a
strong economic incentive (avoiding potential losses from future outbreaks) to replace them
with Ug99 resistant varieties the following season. If resistant varieties are not substituted,
Ug99 is likely to cost the Australian wheat industry much more from recurring future outbreaks.
Ug99 is not present in Australia. The ABARES study identifies significant benefits in continuing
to invest in prevention activities—estimated at between $28 million and $70 million a year.
The Ug99 proofing of Australia's wheat growing areas, by planting varieties resistant to the
current strain of this pathogen, could protect the industry from future stem rust related yield
losses only until a newer and more virulent strain emerges. A number of new strains of Ug99
and other wheat stem rust species (both exotic and endemic) could arrive in Australia, at any
time in the future. To minimise the wheat revenue losses resulting from wheat stem rust, it is
important that government and the wheat industry continue to invest in varietal improvements
which provide resistance to emerging strains.
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
23
Glossary ABARES Australian Bureau of Agricultural and Resource Economics and Sciences
ABS Australian Bureau of Statistics
ACRCP Australian Cereal Rust Control Program
AEGIC Australian Export Grains Innovation Centre
CIMMYT International Maize and Wheat Improvement Centre
CLIMEX Software to predict the effects of climate on species
CSIRO Commonwealth Scientific and Industrial Research Organisation
EPR End-point royalties
GRDC Grains Research and Development Corporation
GVP Gross Value of Production
FAO Food and Agriculture Organisation
IP Intellectual Property
MCAS-S Multi-Criteria Analysis Shell for Spatial Decision Support
Oversummering Process by which some rust fungus can wait out a dry summer season in
the absence of its host, by alternately infecting an annual and perennial
host, or by continuous infection of host plants grown throughout the year
(such as wheat and barley)
Pathotypes A disease-causing variant or a strain of a microorganism
PBR Plant Breeders Right
SNP A single-nucleotide polymorphism
SA4 Statistical Area Level 4
Ug99 A pathotype or strain of the wheat stem rust fungus
USDA United States Department of Agriculture
Potential economic impacts of the wheat stem rust strain Ug99 in Australia ABARES
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